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Global survey reveals effects of Brexit and US election

A quarterly global business survey by Grant Thornton finds sinking levels of business optimism stirred up by global political events. The UK, and EU countries most exposed to Brexit, are experiencing the greatest knock in confidence with US companies feeling shaky in the lead up to next week’s presidential election.

New research from Grant Thornton’s International Business Report (IBR), a quarterly survey of 2,600 business executives in 37 economies, reveals a pronounced change in mood over the last quarter in the UK (-19pp), Ireland (-24pp), France (-18pp) and Spain (-19pp), with the EU and the Eurozone both suffering a 7pp decline. In the US, optimism dropped by 1pp, contributing to a significant 11pp fall over the year, while Mexico took a 22pp tumble in the last three months alone. Globally, business optimism stands at net 33%, rising 1pp from the previous quarter but falling 11pp over the year.

Ed Nusbaum, Global CEO of Grant Thornton, says that “Political events like Brexit and the US presidential election understandably rattle the global economy and test the resilience and elasticity of businesses worldwide. In general, businesses do not like uncertainty, and that is what is happening.

A downturn in confidence in the UK closely mirrors the unfolding of Brexit. Before the turn of the year, optimism was riding high at 74%. But then, in the lead up to the vote, it fell away sharply to 40%, reaching its lowest levels since the start of 2013 with news of the result. This is consistent with declining expectations across seven out of eight business indicators. Confidence has been hit across parts of Europe, too, where economies are waking up to a post-Brexit reality.

In the US, lower levels of confidence are also expected to affect performance, with companies anticipating a fall in revenue (-5pp), a decline in investment in plants and machinery (-4pp) and selling prices (-2pp).

Ed Nusbaum highlights that “UK businesses expect their economic fortunes to begin to slow down, with low optimism reflected in expectations of a weaker performance. Only export prospects have risen, up 10pp to 19%, owing to the cheaper pound. The US, which is also going through a politically uncertain time, tells a slightly different story. Export expectations are up just 1pp, while some areas of investment are holding up a little better.”

Globally, fluctuations are marginal across business indicators such as revenue (-1pp), selling prices (-2pp) and profitability (-2pp) but spill-over effects are likely to show in the next quarter. The data already shows a significant increase in economic uncertainty (+6pp) over the last three months, which is now the biggest constraint for businesses worldwide.

Ed Nusbaum explains that “Businesses react to the macro-economic uncertainty, shelving deals, delaying investment decisions and freezing recruitment. The outcomes of political events take time to unfold and we have little choice but to be patient. During the unfolding, however, policymakers must ensure open dialogue with the business community, so that shocks and surprises are kept to a minimum.”